Sensex Ends 222 Points Lower; Energy and Telecom Stocks Witness Selling

Fri, 22 Mar Closing

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Indian share markets witnessed most of the selling pressure during closing hours and ended their trading session lower. Sectoral indices ended on a mixed note with realty stocks, capital goods stocks, and power stocks witnessed buying interest while energy stocks and telecom stocks witnessed selling pressure.

At the closing bell, the BSE Sensex stood lower by 222 points (down 0.6%) and the NSE Nifty closed down by 64 points (down 0.6%). The BSE Mid Cap index ended the day down 0.6% and the BSE Small Cap index ended the day down by 0.4%.

The rupee was trading at 68.98 against the US$.

Asian stock markets finished on a positive note. As of the most recent closing prices, the Hang Seng was up 0.2% and the Nikkei 225 was up by 0.1%.

Market participants took cues from the US Federal Reserve's move to keep its policy interest rates unchanged. The consensus is that this move by Fed is likely to provide further leg-up to the rally seen in Dalal Street.

The US central bank's decision indicates it is not in a hurry to raise rates in the near-to-mid-term, which translates into a higher spread on earnings yield for foreign investors buying Indian equities.

After the Fed's announcement, the yield on the 10-year US government bond moved lower and settled at 2.51% against 2.54% a day before.

At current interest rates, the earnings yield for a portfolio that mirrors the broad-based BSE 500 index exceeds the US treasury yield by 48 basis points, which is the highest in a year.

In comparison, the spread was a paltry 6 basis points at the end of calendar year 2018, having earlier turned negative during the first quarter of CY18.

According to the reports, this widening of the spread largely explains the recent purchases of Indian equities in the secondary market by foreign portfolio investors (FPIs).

In contrast, FPIs were net sellers in the last calendar year, as an increase in US interest rates had made earnings yields in India unattractive for them.

Note that, FPIs have brought in a net investment of Rs 400 billion in the first three months of 2019 (so far) in Indian equity markets, against net sales of Rs 340 billion during the 12 months of calendar year 2018.

However, while the net inflows are a positive sign, whether the inflow will continue is contingent on several domestic and global macro factors.

Also, speaking of the general mood in Indian stock markets these days, a lot of market participants are playing the prediction game ahead of the elections.

A common theme is to sit on cash to escape the volatility ahead of the upcoming elections. In case there is an unexpected event, you can then get in post the correction.

But does timing the market work?

Not really, if you see the market performance in the year of the past three national elections (2004,2009 and 2014).

Downside of Timing The Stock Market

Looking at the returns in the above chart, staying out of the market to escape volatility would have been a costly affair every time.

The market gave above average returns in all three of those years.

This does not mean one can expect the same in the future.

But there's one thing for sure. Predicting short-term directions of the market is a futile and many a times a costly affair.

That's why we believe in picking safe stocks when they are actually 'safe' i.e. during such times of high pessimism and uncertainty.

In the news from the macroeconomic space, Fitch Ratings cut India's economic growth forecast for the next financial year starting April 1, to 6.8%. This is down from its previous estimate of 7%.

The cut is made on back of weaker than expected momentum in the economy.

Fitch, in its Global Economic Outlook, reported that while we have cut our growth forecasts for the next fiscal year (FY20, ending in March 2020) on weaker-than-expected momentum, we still see Indian GDP growth to hold up reasonably well, at 6.8%, followed by 7.1% in FY21.

Moving on to the news from the pharma space, Alembic Pharmaceuticals share price was in focus today as the company said it has received approval from the US health regulator for Azelastine Hydrochloride Ophthalmic Solution used for treatment of allergic conjunctivitis.

The company in a BSE filing said it company has received approval from the US Food and Drug Administration (USFDA) for its abbreviated new drug application (ANDA) Azelastine Hydrochloride Ophthalmic Solution, 0.05%.

The approved product is therapeutically equivalent to the reference listed drug Optivar Ophthalmic Solution of Mylan Specialty L P.

Last month, the company had received approval from the US health regulator for Acetazolamide extended-release capsules.

The capsules are used for treatment of various kinds of glaucoma.

The approved product is therapeutically equivalent to the reference listed drug Diamox Sequels, 500 mg, of Teva Branded Pharmaceutical Products R&D Inc.

Speaking of pharma sector, note that the BSE Healthcare Index has been on a roller coaster ride in the past few years. The period from 2012 to 2015 saw the index go up more than three times.

And since then it has been a painful ride downwards.

As we wrote in one of our editions of The 5 Minute WrapUp...

• Pre-2015, pharma companies enjoyed a fairytale ride in the US market. Low labor costs, good chemistry skills, along with efficiency, ensured Indian companies could copy innovator drugs to make generic drugs at a fast pace.
  
  The generic business had lucrative margins for all major pharma players. But the party did not last long. In the quest to supply drugs quickly, they compromised on quality at their manufacturing facilities.
  
  No wonder, the US regulatory authority (USFDA) took strict action. Sun Pharma received a warning letter for its Halol manufacturing facility in 2015. It was like a bolt out of the blue. Since then, the downward spiral began and has continued till date.

We believe that pharma companies that invest in creating a pipeline of complex generics or building competencies in alternative dosage forms are better equipped to tackle the changing dynamics in the US generics market as well as in the overall industry.

To know more on what moved the Indian stock markets today, you can check out the most recent share market updates here.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

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